Response to Findings:

The City has not filed DIF Annual Reports in accordance with § 66006(b) for the last four fiscal years including FY 2021 through FY 2024. Response: The Mayor and City Council disagree in part with the Grand Jury’s finding. The City has consistently published its consolidated Development Impact Fee (DIF) Funds Reports (the primary attachment to the DIF Annual Report providing the substantive financial and project data) by March of the following calendar year— approximately 270 days after the close of each fiscal year. The DIF Annual Reports for Fiscal Years 2021 through 2024 were subsequently prepared and presented to the City Council, but the City acknowledges that they were not compiled within the 180-days set forth in California Government Code § 66006(b). This timing reflects the complex and resource-intensive process of consolidating and reconciling fund balances across numerous accounts and ensuring accuracy and consistency in reporting across a citywide portfolio of capital projects and funding sources. The time and resource- intensive nature of reporting on over 50 separate funds is one of many reasons why the City moved from a community-specific DIF structure to a Citywide DIF structure with just four DIF fund categories through the Build Better San Diego initiative. While community-specific DIF accounts will remain in place during the years-long transition period, reporting will be greatly simplified once the transition is complete. Each year, the City produces a DIF Annual Report that substantively includes the information required under Government Code § 66006(b), with the express intent of complying with state requirements. Specifically, the City’s DIF Annual Reports are in full compliance with Government Code § 66006(b) subsections (A) regarding providing descriptions of the type of fee in the account, (B) the fee amount, (C) beginning and end balances, (D) amount of fees collected and interest earned, (G) descriptions of each interfund transfer or loan made and associated public improvement expense, and (H) refunds made, and in substantial compliance with subsections (E) and (F), as outlined below: Subsection (E): While the City’s DIF Annual Reports identify the public improvements funded with DIF revenues, they do not currently include the percentage of total project costs funded by DIF. The City acknowledges this omission and will include this data in future reports. Subsection (F): The City achieves substantial compliance by publishing all projects to the Capital Improvements Program (CIP) webpage. Additionally, the CIP Budget is incorporated by reference into each DIF Annual Report and includes a list of standalone 1 projects funded by DIF as well as status and schedule information for those capital projects. All project attributes including scope, budget and schedule are published on the CIP webpage. The City remains committed to enhancing transparency and is actively working to improve internal coordination and explore options to streamline the reporting process to better align with statutory timelines. The DIF Annual Report for Fiscal Year 2024 is currently available.

The City has been chronically late publishing Annual DIF Reports in violation of MFA § 66006(b) since FY 2015. Response: The Mayor and City Council agree with the Grand Jury’s finding. The City of San Diego acknowledges that it has not consistently met the 180-day deadline outlined in California Government Code § 66006(b) for publishing Annual DIF Reports since FY 2015. The City is a large jurisdiction managing over $60 million in annual DIF revenue, with hundreds of individual project accounts across over 40 communities. Before the report can be finalized, the Department of Finance and the Finance Section within City Planning must complete a detailed consolidation and reconciliation of all DIF funds. This process is complex and time-intensive due to the volume of transactions, the number of community-specific DIF accounts that remain, and the need for accuracy across a broad capital improvement portfolio. As previously noted in the response to Finding 1, preparing the consolidated DIF Funds Report is a complex, time and resource intensive process, which required more than 180 days to complete to ensure accurate and consistent reporting. The transition from 50 separate funds to four Citywide DIF fund categories through Build Better SD aims to help streamline this process moving forward. The City remains committed to improving internal processes and coordination between departments to enhance the timeliness of future reporting and align with the statutory requirements of the Mitigation Fee Act (MFA). The City Planning Department and Department of Finance are actively working together to find ways to streamline procedures to achieve the 180-day reporting timeline. It is estimated that these efforts will better ensure timely compliance with this relatively tight 180-day requirement for the FY 2026 report. The departments are also interested in pursuing amendments to the MFA to provide additional time for this reporting requirement - at least for larger jurisdictions.

The City does not comply with MFA §§ 66006(b)(1) and 66006(b)(1)(E) annual and § 66001(d)(1)(D) five-year reporting requirements. Reporting detail, including yearly fund balances, expenditures, and fees collected, and the five-year reporting requirements do not provide timely, objective, substantive and accurate data that meets all MFA requirements. Response: The Mayor and City Council disagree with the Grand Jury’s finding. The City of San Diego acknowledges the importance of complying with all reporting requirements under the MFA. The City has historically published annual reports that 2 include yearly fund balances, expenditures, and fees collected, consistent with California Government Code § 66006(b)(1). Beginning with the FY 2023 Annual DIF Report, the City enhanced its reporting to include information required under § 66001(d) related to the five-year findings. This includes identification of unexpended funds held for five or more years, a description of the purpose for which the fee was collected, and a determination as to whether there remains a reasonable relationship between the fee and the purpose for which it was originally imposed. These improvements represent steps the City has taken to ensure compliance with MFA § 66001(d). The City Planning Department remains committed to continuing to improve the transparency, accessibility, and consistency of its DIF reporting and will continue to coordinate with the Department of Finance and the City Attorney’s Office to ensure full compliance moving forward.

The City’s Community Plans and Financing Plans are outdated – some in excess of 10 years, or more. Response: The Mayor and City Council agree with the Grand Jury’s finding. The City agrees that many Community Plans and their corresponding Financing Plans are outdated, with some last updated more than a decade ago. With 52 community planning areas, it would be infeasible, time-consuming, and costly for the City to update each financing plan individually and on a recurring basis due to the City’s limited capacity and resources. To address this challenge and modernize infrastructure funding, the City adopted a new approach through the implementation of the Parks Master Plan (2021) and Build Better SD (2022). These efforts established four Citywide nexus studies for Parks, Mobility, Fire, and Library, which have taken the place of individual Public Facilities Financing Plans (PFFPs) for each community. The nexus studies are based on information taken from different sources, including the General Plan, Community Plans, the Parks Master Plan, the Mobility Master Plan, the San Diego Public Library Master Plan, the Climate Action Plan, and the Municipal Code. Similar to the PFFPs, the four nexus studies provide the basis for the calculation of the Citywide DIF rates. Existing funds in Community DIF accounts will continue to be expended for the purpose for which they were collected, in accordance with the adopted Financing Plans for each community and the MFA. All new development applications are now charged under the Citywide DIF structure (unless state law otherwise requires the City to still charge the Community DIF) and revenues are allocated in accordance with the Citywide nexus studies. Citywide DIF revenue can also be leveraged to supplement insufficient community-specific DIF funds to deliver the infrastructure identified in the financing plan. In communities with DIF fund balances, City staff has received input from planning groups, community members and Asset Managing Departments to identify infrastructure priorities and projects that can utilize DIF funding while ensuring that DIF funds are only being expended on projects that serve the purpose for which they were collected. As a result of this proactive approach, the unallocated fund balance for 3 Community DIFs has been reduced by approximately 34%, from $251.4 million at the end of fiscal year 2021 to $166.6 million at the end of fiscal year 2024. The initial Citywide nexus studies were adopted by City Council in August 2021 and August 2022 and are currently undergoing updates. The updated nexus studies are targeted for City Council consideration in early 2026, and will continue to provide a more equitable, streamlined, and citywide approach to infrastructure planning and investment. Going forward, the efficiencies gained by updating four nexus studies rather than dozens of community-specific financing plans will allow for much more regular updates to ensure that the DIF rates reflect current infrastructure needs and costs. It is important to note that the only purpose of updating a PFFP is to establish the basis for a new or revised community-specific DIF. Because the City has transitioned to the Citywide DIF structure, there is no longer a rationale for updating PFFPs—the Citywide nexus studies establish the basis for calculating fees and have replaced the PFFPs. However, due to SB 330, the City is required to continue collecting community DIF through FY 2029 if a project qualifies under SB 330 and if the applicable community DIF rate is lower than the Citywide DIF rate. In such cases, the community DIF collected under SB 330 requirements is still deposited into community-specific DIF accounts and expended in accordance with the applicable PFFPs. Regarding updates for Community Plans, the City has made significant progress in recent years. The City has adopted the following specific plans since 2008: City Prepared • Balboa Station Area Specific Plan (2021) • Morena Corridor Specific Plan (2019) • San Ysidro Historic Village Specific Plan (2016) Property Owner Prepared • Otay Mesa Southwest Village (in process) • Riverwalk (2020) • Otay Mesa Central Village (2017) • Quarry Falls (2008) The City has adopted the following community plans since the General Plan was updated in 2008: • Otay Mesa Community Plan (2014) • Encanto Neighborhoods Community Plan (2015) • Southeastern San Diego Community Plan (2015) • Ocean Beach Community Plan (2015) • Navajo Community Plan – Grantville Focus Plan Amendment (2015) • Golden Hill Community Plan (2016) • North Park Community Plan (2016) • San Ysidro Community Plan (2016) • Uptown Community Plan (2016) • Midway Pacific Highway Community Plan (2018) • Old Town San Diego Community Plan (2018) 4 • Mission Valley Community Plan (2019) • Kearny Mesa Community Plan (2020) • Barrio Logan Community Plan (2021) • Mira Mesa Community Plan (2022) • University Community Plan (2024) • Uptown – Hillcrest Focused Plan Amendment (2024) The City is in the process of updating the following community plans: • College Area Community Plan • Clairemont Community Plan • Mid-City Communities Plan • Rancho Bernardo Community Plan • Otay Mesa – Nestor Community Plan Since 2008, the City of San Diego has adopted six specific plans, two focused plan amendments and 15 community plans, with five additional updates in process.

There are instances where administration charges exceed the target percentages documented in each community PFFP or IFS. For example, one DIF account has been charged 18%. This exceeds the City’s established maximum for administrative charges. Response: The Mayor and City Council agree with the Grand Jury’s finding. The City acknowledges the importance of adhering to administrative cost limits. This goal is facilitated by the transition to Citywide DIF moving forward, which includes the 5% cap on administrative expenses established for the Citywide DIF funds. Since the implementation of Citywide DIFs, the City Planning Department has worked closely with the Department of Finance to proactively manage administrative expenditures by establishing annual administrative budgets for each Build Better SD fund at the start of the fiscal year. These budgets are carefully developed to ensure administrative charges remain within the 5% aggregate revenue cap and are not created for any fund projected to exceed that limit. The City similarly applies this approach to the community-based DIF funds, applying the same monitoring and budgeting methodology. Specifically, the City tracks the aggregate administrative rate, defined as aggregate administrative expenses divided by aggregate revenue, for each fund. When a community-based fund approaches the 5% cap, the City takes steps to suspend further administrative charges to avoid exceeding the limit. The City acknowledges that prior to adopting Citywide DIFs, spikes in administrative expenses occurred in connection with updates to PFFPs or Impact Fee Studies, where staff expenses would be greater due to the updates. Specifically, these spikes in administrative expenses occurred to the Ocean Beach DIF due to the update to the 2015 Ocean Beach PFFP, to the Uptown DIF due to the 2017 Uptown Impact Fee Study update, and to the Mission Valley DIF due to the 2020 Mission Valley Impact Fee Study. In such cases, it was expected that future development activity and revenue would gradually normalize the administrative rate. However, the adoption of Citywide DIF altered revenue flows, as most new development is now charged Citywide DIF, reducing 5 future revenue into legacy community-based DIFs. As a result, the past assumption that revenue would eventually offset temporary overages is no longer valid. While the City took measures to train staff on proper time entry and to monitor administration rates closely, it is acknowledged that in some cases, Internal Order numbers for administrative charges remained open, which in limited instances, inadvertently allowed new charges to be posted even after a fund reached its cap. However, this situation has been addressed with the following additional oversight and controls which were instituted over the past few years and will be completed this Fall: Internal Orders are closed for administrative accounts tied to community-based o DIF funds that have reached the 5% cap or that no longer receive revenue, so that those internal orders cannot be billed to in error. Administrative rates continue to be monitored across all DIF funds to ensure o compliance. Further administrative charges are prevented from hitting funds with no o available balance. This was accomplished by closing the applicable accounting internal orders, so they can no longer be used.

Community-based DIF funds have been spent by the City to develop the Citywide Build Better SD DIF program, in violation of § 66001(g). Response: The Mayor and City Council disagree with the Grand Jury’s finding. The City does not concur with the finding that use of community-based DIF administrative funds to support the development of the Citywide Build Better SD DIF program was in violation of California Government Code § 66001(g). The activities in question—primarily the preparation of nexus studies and policy documents necessary to implement Build Better SD—were administrative actions undertaken to transition the existing community-based DIF system to the Citywide DIF system while ensuring that the costs of infrastructure identified in community-specific financing plans were updated to reflect current costs. These efforts were consistent with the City’s historical practice of updating community-level nexus studies and financing plans and were reasonably necessary to support continued administration of the DIF program. Government Code § 66014(b) explicitly allows DIF to include costs “reasonably necessary to prepare and revise the plans and policies that a local agency is required to adopt before it can make any necessary findings and determinations.” Government Code § 66016(c) authorizes a local agency to recover the costs it incurs in conducting meetings related to the adoption of new or updated fees, which by extension includes the development of nexus studies that support those actions. Community-specific administrative funds were used to support the development of the Citywide Nexus Studies because these studies served the same fundamental purpose as updating community-based DIF nexus studies and PFFPs—they furthered the update, improvement, and long-term continuity of the City’s DIF funds. These actions were necessary to allow for continued administration of the community-based DIF funds 6 since a new strategy was needed to ensure that the community-based DIF funds could be expended more efficiently for the purpose for which they were collected. Community DIF administrative funds were appropriately used to support the development of the Citywide Nexus Studies because these studies replaced the former community-based impact fee studies. Maintaining and updating more than 50 separate community studies was administratively inefficient and resource-intensive. Transitioning to four consolidated Citywide Nexus Studies established a streamlined and standardized framework for more effective and timely administration of DIF funds, consistent with the purpose for which they were collected. Had resources been expended to continue updating the 50 separate studies, the more likely outcome would have been continued delays in expending funds, increased risk of refunds, and ultimately less community infrastructure delivered. By contrast, the Citywide Nexus Studies provide a more efficient foundation to direct funds toward projects, resulting in greater investment in community infrastructure. With the adoption of Citywide DIFs, administrative costs associated with future nexus study updates are allocated to the applicable Citywide DIF fund.

The City used fees collected and deposited in twenty-two of the fifty-two legacy DIF accounts, totaling $720,159.87, titled “DIF Rebuild,” for administrative use to create the Build Better SD program. Response: The Mayor and City Council agree with the Grand Jury’s finding. The City acknowledges that administrative funds from 22 legacy community-based DIF accounts were used to support the development of the Citywide Nexus Studies under Build Better SD. This work was a direct continuation of the City’s long-standing practice of updating community-specific nexus studies and PFFPs and was conducted in furtherance of administering the DIF program overall. As noted in the response to Finding 6, California Government Code § 66014(b) and § 66016(c) authorize the use of DIF revenues to support costs reasonably necessary to prepare and revise plans and policies required for the lawful adoption and implementation of fee programs, including the development of supporting nexus studies. The use of these administrative funds was legally permissible and aligned with past practices to maintain legal compliance and program continuity.

The cost of developing the Build Better SD program structure should have been borne by the City’s General Fund. Response: The Mayor and City Council disagree with the Grand Jury’s finding. The City disagrees with the assertion that the cost of developing the Build Better SD program structure should have been borne by the General Fund. Build Better SD involved the preparation of Citywide Nexus Studies, which served to update and modernize the City’s DIF program. This work was no different than updates of community-based nexus studies and PFFPs, which have also been funded through administrative portions of DIF revenues. As noted in the response to Finding 6, California Government Code § 66014(b) and § 66016(c) authorize the use of DIF revenues to support costs reasonably necessary to 7 prepare and revise plans and policies required for the lawful adoption and implementation of fee programs, including the development of supporting nexus studies. Because the Citywide Nexus Studies supported the administration of the existing DIF program, the use of DIF administrative funds was appropriate.

The GJ investigation concluded that despite warning signs, the City has failed to take appropriate actions to correct problems or take corrective action in administering the DIF program. Response: The Mayor and City Council disagree with the Grand Jury’s finding. The City disagrees with the Grand Jury’s conclusion that it has failed to take corrective action in administering the DIF program. While the City acknowledges that DIF Annual Reports have not consistently met the 180-day publication timeline outlined in the MFA, the City Planning Department and the Department of Finance have continued to prioritize the production of accurate and comprehensive reports. These reports require significant coordination and data reconciliation across multiple departments and funding accounts, reflective of the City's size and complexity. Although the Annual DIF Report does not provide a detailed breakdown of all funding sources used for each capital project, it references the City’s CIP Budget, which typically includes project-level data for large standalone projects such as estimated construction start and end dates, total estimated costs, and the funding source breakdown— including DIF contributions. For group projects such as traffic signals, curb ramps, etc., the estimated schedule and cost are available on the City’s CIP project tracker. While the tracker does not currently show the amount of DIF funds appropriated to each project, City Planning will coordinate with the Engineering and Capital Projects Department (E&CP) to explore opportunities to include this information in the future. This cross-referenced approach has been intended to promote transparency and alignment with state requirements. Beginning with the FY 2023 DIF Report, the City enhanced its reporting to include additional detail for each fund account with unspent balances exceeding five years. This includes specific project allocations intended to reduce those balances and estimated dates by which expenditures will occur—demonstrating further compliance with California Government Code § 66001(d). As noted in Finding 5, the City also takes steps to ensure that administrative charges associated with DIF funds remain within the 5% aggregate revenue cap (as identified in either the resolutions adopting the DIFs or the applicable PFFP or Impact Fee Study). The City Planning Department closely monitors these allocations, and administrative percentages are reviewed and reported as part of the DIF report annually to ensure they remain within the allowable threshold. The use of administrative funds is restricted to activities that directly support the DIF program, including fee calculation, accounting, reporting, fee development, and project coordination. Additionally, the City’s 2021 transition from community-specific DIF programs to a Citywide DIF structure under Build Better SD represents a significant improvement to program administration which will streamline reporting going forward. This shift allows for more regular updates to nexus studies, greater flexibility in allocating funds, 8 and improved alignment with citywide equity and growth goals—all in full compliance with the MFA. As shown in the FY 2024 DIF Annual Report, only four community-based DIF accounts have unappropriated balances that have remained in the account for over five years: North University City (DIF and FBA), Del Mar Mesa, and Carmel Valley. In each of these cases, the City has identified eligible projects and is actively appropriating funds to ensure expenditures are consistent with Government Code § 66001. For example, North University City has an unexpended balance of approximately $29 million, of which $20 million is already appropriated to CIP projects with defined construction end dates, and the remaining $9 million is anticipated to support the Regents Greenway Project. Del Mar Mesa has an unexpended balance of approximately $9 million, which is being allocated to the Del Mar Mesa Trails Project through City Council approval as part of the FY 2024 Annual DIF report and appropriations. Carmel Valley has an unexpended balance of approximately $35 million, of which $33 million is already appropriated to projects in the current PFFP, and the remaining $1.2 million is anticipated to be allocated to additional park projects identified in the community. The City is actively working to identify eligible capital improvements to allocate these funds appropriately. These collective efforts reflect an ongoing commitment to improve the management and reporting of DIF funds in accordance with the MFA and to ensure that infrastructure investments are made equitably, transparently, and responsibly. RESPONSE TO RECOMMENDATIONS: